The U.S. Securities and Exchange Commission announced on May 28, 2021 that it had filed an action against five individuals alleging that they promoted a global unregistered digital asset securities offering that raised over $2 billion from retail investors. These activities relate to BitConnect, which shut down its business in early 2018, shortly after, as we reported, the Texas State Securities Board issued a cease and desist letter. At that time, the regulator alleged that that BitConnect had a market capitalization of $4.1 billion and was representing to investors that they could earn returns of up to 40 percent per month. Regulators and the press warned of the “Ponzi-type nature” of the enterprise.
According to the SEC’s complaint, from approximately January 2017 to January 2018, BitConnect used a network of promoters, including U.S.-based Trevon Brown (a.k.a. Trevon James), Craig Grant, Ryan Maasen, and Michael Noble (a.k.a. Michael Crypto) to market and sell securities in its “lending program.” The SEC’s complaint alleges that these promoters offered and sold the securities without registering the securities offering with the Commission, and without being registered as broker-dealers with the Commission, as required by the federal securities laws. The promoters advertised the merits of investing in BitConnect’s lending program to prospective investors, including by creating “testimonial” style videos and publishing them on YouTube, sometimes multiple times a day. According to the complaint, the promoters received commissions based on their success in soliciting investor funds. The complaint further alleges that BitConnect told investors it would profitably trade their Bitcoin using an automated “trading bot” and required the currency to be locked up for terms ranging from four to ten months. The lawsuit says that BitConnect eventually lost 92% of its value, and investors lost all or nearly all of their funds in the “lending program.
The SEC’s complaint charges the promoter defendants with violating the registration provisions of the federal securities laws and seeks injunctive relief, disgorgement plus interest, and civil penalties.